[siddthesquid]

I think the technology of blockchain is irrelevant.

If something can be accomplished on the blockchain, which requires N nodes, a business can probably replicate that same objective with less than N nodes because they don't have to pay the cost of verifying that nodes are acting honestly. This business is incentivized to be honest because otherwise they lose their business. Someone has to pay those costs for the N nodes on the blockchain - who will it be? Transactions seem cheap now because funding for these blockchains is often used to subsidize costs.

You mentioned ease of use, like the use of SDKs, but blockchain technology does not enable that. All blockchain can do is that if you ask it "hey i was told the state of the world was this. is it true?" and the blockchain will tell you yes or no. If you want to provide those kinds of guarantees to customers in a reliable way, all you need is cryptography, not blockchain.

[SkidanovAlex]

The most important aspect of blockchain that is relevant here is that your counterparty half a world away and you both agree that you trust the state of this blockchain, and thus can transact on it.

For business running the same code on their 1 node instead of N is not a replacement, because their counterparty has no reason to trust whatever is running on that 1 node.

Your reasoning re: N nodes are expensive is also flawed. Executing a single payment transaction takes a fraction of a second of compute. Even if it is replicated 10,000X, it's still extremely cheap compute-wise. The low cost of transactions has nothing to do with subsidizing.

[wredcoll]

> For business running the same code on their 1 node instead of N is not a replacement, because their counterparty has no reason to trust whatever is running on that 1 node

I mean, why are you doing this kind of business with someone where you can't even trust that?

Aside from that, block chains only provide trust if they're meaningfully decentralized. These hyper specific b2b ones seem unlikely to pass that test. Exactly who all is running verifier nodes?

[wholisticguy]

This is the main value of a blockchain. You can do business with someone you don't specifically trust without requiring a third party in the middle to mediate the financial transaction.

The only people that need to run a verifier node are those that don't trust the other verifier nodes to do it properly. It's opt in, most will not run one, but a business that has enough money at stake can if they want to.

Then the blockchain client software provides the framework for cryptographic assurance that the two copies of the ledger are in sync.

[DennisP]

Businesses do lots of transactions without trusting anyone else's records. Then they do lots of slow, expensive mutual auditing.

[YawningAngel]

You don't need verifiers. I interviewed at R3 (now Onyx) in JP Morgan and my take on the business was that it's more of a distributed ledger than a blockchain

[degamad]

Distributed to who?

[afiori]

I don't like Blockchains mostly but the technology of the Blockchain here is not irrelevant, it is a way to use peer to peer liquidity. That is there is no need for a central entity to have liquidity in many different circuits because you can trade with other coin holders directly in many different exchanges.

Sort of like banks use customer money to offer loans to avoid the need of centralised liquidity.

The Blockchain technology is important to allow different exchanges to interact with each other in ways that I suspect would be not super legal through a central entity.

[wrs]

Running a database does not require liquidity.

[afiori]

Running a database with no liquidity does not allow you to actually transfer funds.

When A sends money to B both have an expectation that B is able to access such money through normal monetary systems like: seeing their bank balance go up, withdraw it as cash, or transfer it again to C which will have a similar recursive set of expectations.

Unless your database is the de facto central banck for the currency A and B use you will have to convice B's monetary system to believe B now has more money. The simples and almost only way to do that is to pay the appropriate price in a currency they like.

Which requires liquidity.

As an example if you wanted to install a bitcoin ATM with withdrawl* in a train station (or anywhere else) you would need liquidity in whatever currency the user want to withdraw.

* I suppose you could withdrawn bitcoin by giving out fresh wallets with the sum or by simply transfering it.

[wrs]

Why should a database need to transfer funds? Bitcoin doesn’t transfer funds, it’s just a shared ledger of what funds have been transferred. Lots of banks use Oracle to record fund transfers, but Oracle doesn’t transfer any funds.

[afiori]

> Lots of banks use Oracle to record fund transfers, but Oracle doesn’t transfer any funds.

because it is the banks that do the transfer, so they need to have liquidity

> Bitcoin doesn’t transfer funds, it’s just a shared ledger of what funds have been transferred.

the bitcoin blockchain act as a single bank in terms of transfering between bitcoin wallets, there is no need for central liquidity because it is all "internal".

A perfect example is arbitrage between bitcoin exchanges, to my undestanding many exchanges do internal transactions off-chain and only interact with the public blockchains for deposits/withdrawals. If a user wanted to exchange bitcoin for ether and then withdraw the sum the exchange would need to have liquidity in ether for the withdrawal.

[InsideOutSanta]

Is this just for dilution of responsibility? If a central company is responsible for these transactions, then they are responsible for the transactions, which means there are all kinds of legal constraints and repercussions. But if it's a blockchain, then all of the nodes in the network are responsible.

So in this case, "this business is incentivized to be honest" might be the precise "problem" this is meant to solve.

[jacobr1]

Or further, that you need to interact with a business at all. Visa does a good job intermediating many classes of payment. But I am limited in what kind of applications I can build on top of that (tied directly into the payment)

[floatrock]

This makes sense as long as

> This business is incentivized to be honest because otherwise they lose their business

is true. And it might be true if you assume perfect competition, low barriers to entry, no egregious regulations, no regulatory capture, no bundling to force decisions regardless of 'honesty' (or 'fairness'), etc.

So in a perfect world, maybe. But I think the niche in all the imperfections.

[baby]

You are missing the "trust" element of a blockchain. A blockchain essentially allows you to run a distributed database where the different actors don't trust one another. Tradfi is built on trust of entities (can I trust this bank? Can I trust this central bank? Etc.)

[siddthesquid]

Yes, that trust is the fundamental difference. However, that trust costs money in the form of needing more nodes.

You usually can trust your bank, as long as you trust your government. Regulations make it difficult for banks to misbehave.

That being said, not trusting your government (which I can believe is a valid stance in some countries) is probably the only valid use case for blockchain IMO.

[baby]

I would say it cost less money, running a bank is a massive cost, entire cities like London, New York, and HK are built around the banking world.

[gotbeans]

> Criptography

You mean criptography and trust right?

[siddthesquid]

If I'm bank of america, and i publicize a public key, and then everytime everyone does a transaction, i sign a receipt using my public key such that my customers can prove that transaction happened, then that would be the cryptography.

if bank of america does something malicious, i can prove in court very trivially through those signed receipts that they did so.

So I don't need to trust bank of america - i just need to trust the courts to charge financial institutions that provably are breaking the law.

[AnthonyMouse]

> If something can be accomplished on the blockchain, which requires N nodes, a business can probably replicate that same objective with less than N nodes because they don't have to pay the cost of verifying that nodes are acting honestly. This business is incentivized to be honest because otherwise they lose their business.

This is missing something important, which we can see by considering one of the major problems merchants want to solve right now.

The credit card companies charge them ~3% and then give ~1% back to the customer, implying that there is a ~2% net gain to be had by cutting out the middle man. So why hasn't this happened? Because the alternative with the lower fees is ACH, but customers are less willing to give out their bank account number than their credit card number to a random small business.

This is the easy case for some centralized service to fix it, right? Have some large trustworthy company take the customer's bank account info and transfer the money to the merchant for a very small processing fee. But this is the part where your assumption falls through. Once the merchant has signed up for this, the payment processor is the only one with the customer's payment info. In other words, it's hard to switch, and then the payment processor can charge higher fees (eroding the benefit) and the high switching costs also cause the market to consolidate. And because you're tied to a single payment processor, when their fraud AI has a false positive they can erase your business overnight by locking you out and not answering the phone.

Now suppose you don't have a centralized system. Instead, the customer acquires a store of value (Bitcoin, stablecoin, something else) however they want. Customer A can get it from Coinbase, Customer B can get it from Stripe, Customer C can get it by selling something on eBay and accepting it as payment, and the merchant doesn't have to do business with any of these third parties to accept payments from customers who do, because they all support the same transfer medium.

Now you have a competitive market. Currently a new payment processor has to earn the trust of a large enough percentage of the general public for merchants to be willing to use them; a new exchange would only need the trust of enough people to be doing enough business to cover their costs, a far lower threshold. If a merchant wants to switch payment processors or has a dispute with one of them, their own customers wouldn't have to do anything different because the means customers use to convert dollars to tokens is independent of the means merchants use to convert tokens to dollars.

> Someone has to pay those costs for the N nodes on the blockchain - who will it be?

That's the boring question. The interesting question is, can you have a blockchain with lower fees than payment processors currently have? And the answer appears to be yes, e.g. the transaction fee for Bitcoin Cash is around a penny.

[siddthesquid]

My point is that blockchain is just a technology - nothing about the technology itself makes the concept of transferring money cheaper. I agree that it is another competitive avenue for transactions, but if it became a threat to payment processors, my theory is that they could lower their costs more than blockchains potentially can. This is because the software and infrastructure needed to build something that assigns numbers to accounts and allows transfers is obviously going to be cheaper off the blockchain.

If trust is an issue, the bank can provide cryptographically signed receipts that show they've confirmed the entire lineage of your account, in the same way a blockchain does, but they would be the only verifier. The question becomes about how the cost of the additional trust from the blockchain relates to the incentive of doing honest business. I imagine that trust cost is pretty high.

> can you have a blockchain with lower fees than payment processors currently have? And the answer appears to be yes

The transaction fee is not the only thing being paid. They are also getting mining rewards. If a blockchain has mining rewards, maybe in the form of Bitcoin Cash, then that will dilute the entire pool of Bitcoin Cash.

[AnthonyMouse]

> They are also getting mining rewards. If a blockchain has mining rewards, maybe in the form of Bitcoin Cash, then that will dilute the entire pool of Bitcoin Cash.

How is this any different than the Fed or the fractional reserve banking system creating new US dollars?

> nothing about the technology itself makes the concept of transferring money cheaper.

Nothing except for the thing that matters: If you have something fungible instead of something with high switching costs, it makes fees go down.

> if it became a threat to payment processors, my theory is that they could lower their costs more than blockchains potentially can.

And that's why blockchains are useful! To exert the pressure needed to make that happen.

It doesn't matter if the centralized system can have lower costs unless it actually does, and for that you need the competitor to exist as a viable threat.

[siddthesquid]

> How is this any different than the Fed or the fractional reserve banking system creating new US dollars?

The miners get the fees. The fed does not keep the dollars they make. They also adjust the rates to avoid things like recessions.

> Nothing except for the thing that matters: If you have something fungible instead of something with high switching costs, it makes fees go down.

The US dollar is considered fungible... Help me understand how any of this is specific to blockchain technology and not included in non-blockchain technology. Have you worked with this tech before? Also, what about things like venmo and zelle? zero fees, super fast.

> And that's why blockchains are useful! To exert the pressure needed to make that happen.

I'm not saying they are not useful. I am saying the technology behind them is irrelevant to the costs.

[AnthonyMouse]

> The miners get the fees. The fed does not keep the dollars they make.

Somebody gets the money. Banks and government contractors get the money. It's not clear how that's any better than miners getting it, and either way it's creating new money that dilutes the value of your existing money.

> They also adjust the rates to avoid things like recessions.

There is nothing stopping the government from setting up a fractional reserve banking system denominated in a cryptocurrency. It works the same as it does in dollars. Alice borrows from the bank, pays the money to Bob and now the bank credits Bob's account and balances its books through the money that Alice owes the bank. If Bob wants to withdraw the money as physical cash or cryptocurrency in a non-custodial wallet then the bank either has enough reserves to do that or can sell the loan and use the proceeds to pay Bob. But if that doesn't happen -- which is more common -- then the balance credited to Bob's account only ever exists in the bank's computer and the bank has effectively created new money in that denomination.

> The US dollar is considered fungible... Help me understand how any of this is specific to blockchain technology and not included in non-blockchain technology.

US dollars as bills in your pocket, sure, but it's hard to transfer those over the internet without involving a middle man.

> Also, what about things like venmo and zelle? zero fees, super fast.

Venmo isn't a protocol, it's a company. It isn't free for businesses and they can still shut down your operations without recourse.

Zelle is a protocol, but it's designed for transferring money between individuals, not making purchases from a business or setting up autopay. What we need is a protocol that is designed to do those things, but the banks fight attempts to create it because they want to keep getting the 3% from credit cards.

> I'm not saying they are not useful. I am saying the technology behind them is irrelevant to the costs.

Suppose that something with the transaction fees of Bitcoin Cash was more widely used and therefore a viable way for small businesses to accept payments from ordinary customers. Which existing non-cryptocurrency service is a viable means to do the same thing for the same or lower fees? A real one, not a hypothetical cost structure that nobody actually offers.